Question

Use the Internet to research a recent accounting scandal within the past five years related to irregularities in financial statement reporting.

Using the case (see above) as a reference and from the e-Activity, discuss the improper recognition treatment you researched, and make a recommendation regarding the type of analytical procedure that should have detected the improper accounting transactions. Propose the internal control activities or audit plan that might have detected the improper transactions. Be specific with your recommendation.

Answer 1

The various Analytical Procedures that could be used to detect improper accounting transactions are:

a) Compare the departmental details with the overall figures: The various reports / details submitted by the various departments could be matched with the overall results. The procedure will detect the irregular and un-expected transactions.

b) Interview with the management : The extraordinary accounting transactions are put to question with the management to gain understanding about its authentication and relevance in the organizational business. The impact on the company and the environment would be analysed to remove impurities from the various transactions in accounting system.

c) Auditors observations on the internal controls of the company : The auditors could identify unusual accounting transactions or events through various analytical procedures like ledger scrutiny, random verification of ledger, etc. This will enable the auditor bring up the reasons and causes for decline in in turnover or profits during the year, diversion from industry trends and the risk involved in stating the transactions.

d) Observations of the operating staff: The irregular transactions observed by any operating staff of any department would help the accounting division to verify the authentication and viability of the transaction. In depth enquiry would be undertaken by the auditors in the matter.

e) Inspections : A periodical inspection of business budgets, various manuals dealing with internal control and departmental reporting, reporting on various statements, board meeting minutes and information available over internet or companies website, could provide good clues for the improper accounting transactions.

The above procedures which are drafted to detect any irregular accounting transaction would counts for a fruitful results in eliminating the improper accounting transactions.

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